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We present our ninth edition of our bi-annual Distance to Default (D2D) publication. We provide our insights into the changing state of corporate health across all ASX sectors, following the end of the reporting season for the 6 months to December 2020. We have also conducted our D2D analysis as of April 2021 and we observed an increase in the average D2D score between December 2020 and April 2021 from 1.61 to 1.76.

Distance to Default – Movements across ASX to April 2021


Consistent with our last report, our analysis indicates that the Financials and Real Estate sectors continue to display the highest D2D scores (furthest from default), with the Materials and Energy sectors displaying the lowest D2D scores. Further, we have observed in the financial spotlight (page 10) some of the best performing industries have significantly reduced debt and improved cash flows over the last six months.

We have included New Zealand for the first time in our D2D publication, given the close economic ties and banking relationships Australia shares with New Zealand.

The analysis indicates the average NZX D2D score is strong at 3.23 (December 2020) and 3.31 (April 2021). We observed 97 percent of companies displaying a D2D score of 1 or more at April 2021.

Including analysis on the NZX enables our readers from New Zealand or with exposure to the New Zealand market to understand what is happening in the New Zealand market and the trends in the market and sectors over time. We note that certain aspects of the New Zealand market make it difficult to draw meaningful comparisons with the Australia D2D results.

Financial Services

  • Half year combined cash profit after tax was reported 62.3 percent higher than the previous corresponding half year period by the Major Banks.
  • The Major Banks, governments, regulators and central banks swiftly mobilised operations to support households and businesses. This has provided financial resilience to the Australian economy.
  • Two significant issues identified at the top of executives’ minds in the banking sector are revenue loss management and cost optimisation.

Economic outlook

We are currently operating in a market that has never been seen before with record low levels of insolvency. We expect to see this creep back up in the next 6-18 months to normal levels – counter-party risk is crucial right now as we operate in a ‘false dawn’.

  • Front-line service sectors, including air transportation, food services, accommodation, and arts and recreation experienced the highest deterioration in gross value added (IGVA) over 2020. In contrast, public administration and safety and healthcare delivered the strongest performance during the pandemic, while the retail sector’s performance exceeded expectations.
  • Vaccination roll-out continued to build economic activity. Consumer confidence has been optimistic bouncing back to surpass the pre-pandemic levels and touching 110 on the consumer sentiment index.
  • Established house prices appear to be on an upswing driven by pent-up demand, a balloon in savings, limited growth in housing supply and ultra-low interest rates. This, in part, is driving a significant increase to the average D2D score observed in the Real Estate sector (currently at 3.06 as of April 2021).


Distance to Default: Key movements in D2D scores by industry group


The Distance to Default metric is an indicator of financial health and is used to assess a company’s ‘distance-to-default.’ The analysis has been prepared using the Moody’s Kealhofer, McQuown and Vasicek (KMV) D2D formula, and relies on source data from the Capital IQ database.

The metric takes into account financial information and market data. The closer to zero, the more likely a company is to default. In contrast, the further a company is from zero, the less likely it is to default. In this analysis, released every 6 months, we analyse the D2D score movements of ASX-listed companies (following the reporting season of full year and half-year results) to draw insights into corporate health across the Australian economy.

Full report

Read our analysis of the D2D score movements of ASX-listed companies:

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